The New Zealand Dollar looks set for more gains against the Japanese currency

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Japanese Yen bulls are having a better time of it against the US Dollar this week and, indeed, have forced USD/JPY down to what may be a critical juncture.

On its daily chart the pair is testing the downside of channel support in place since the current climb started back on September 7. That support comes in within a whisker of current levels (as of 0100 GMT Wednesday), at 113.76. US Dollar bulls are going to have to work hard to secure a daily close above this level and keep the channel intact.

They may well feel encouraged if they can, of course. The putative channel base has so far only been tested once, at the end of October. One more successful trial would validate the channel still further.

However, should they fail to defend that downside then what happens next will be crucial. The case could be made that a period of consolidation might ensue, with USD/JPY trading a wide band between the recent high of 114.72 and the recent low of 112.58 before shaking out stale bulls and heading higher again.

Those betting against the Dollar will probably have to force the Yen below those levels in quite short order if anything more swashbuckling than a consolidative pause is their aim.

Meanwhile the New Zealand Dollar appears to be doing rather better against the Japanese currency at last. The Kiwi had been under pressure from its home county’s election on September 23 which produced no overall majority. That pressure increased in mid-October with the formation of a coalition government centred on the left-wing Labour party which was not New Zealand Dollar bulls’ first choice to put it mildly.

The currency showed a marked tendency to rise before the vote on the release of any opinion polling which suggested that the then-incumbent National Party would return to power in Wellington.

However, those bulls seem to be warming to the idea, or at least learning to live with it. NZD/JPY remains very much within the downtrend channel seen since late September, but it is edging a little close toward the upper boundary.

The downtrend line from October 19, when the shape of the new administration became known, is now being challenged on the daily chart. It comes in at JPY79.02. Watch out for daily closes above this level as signs that the New Zealand Dollar is girding itself for a fresh assault on the top of that broader uptrend channel.